By Kymberly Martin
Most major currencies traded relatively contained paths during the period of Easter-thinned trading.
The USD has declined in the early hours of this morning, with most of its peers benefitting. The NZD/USD has traded up to 0.6720.
The USD has traded lower in the early hours of this morning after the release of data showing the US Fed’s preferred inflation measure (the PCE deflator) slipped to 1.0% y/y in February from 1.3% previously.
The USD declined along with US short-end yields, as the market ponders prospects for further Fed rates hikes this year.
The market now prices just over a 70% chance of one 25bps hike by year-end. Most peers benefitted from the downshift in the USD. The EUR/USD has traded up from 1.1160 to above 1.1200 currently.
The GBP found support after the release of better-than-expected UK retail sales data on Thursday evening. It has subsequently traded higher, assisted by USD weakness early this morning. The GBP/USD now trades at 1.4240.
The JPY has been the only major currency failing to outperform the USD since the start of the week. Over the past week it has traded steadily lower. The USD/JPY now trades at 113.30. However, the top of its trading range of the past couple of months is still some way away, at around 114.50.
The NZD/USD and AUD/USD have also pushed higher since the start of the week. From 0.6670, the NZD/USD now trades at 0.6720.
At the end of last week we published revised long-term forecasts for both the NZD/US and AUD/USD. Essentially, the Fed’s evident dovish-ness makes it more likely, than not, that the USD will not now surpass early year highs.
That said we still look for resumption of USD strength later this year, on our assumption that the Fed delivers two more rate hikes before year-end (more than current market pricing).
Our adjusted forecasts now see the NZD/USD and AUD/USD trading to cyclical lows, late this year of 0.61 and 0.69 respectively (from 0.60 and 0.67 previously). Near-term the NZD/USD appears well contained within a 0.6550-0.6870 range.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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